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Consolidation

1. The document outlines steps for eliminating intercompany transactions and investments when consolidating financial statements, including recording goodwill, writing up assets to fair market value, and eliminating the subsidiary's capital structure. 2. Specific steps are provided for eliminating intercompany sales, fixed asset transactions, and bonds between the parent and subsidiary. 3. Brief instructions are given for accounting for the issuance of stock to acquire a company.

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Jon Leins
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169 views3 pages

Consolidation

1. The document outlines steps for eliminating intercompany transactions and investments when consolidating financial statements, including recording goodwill, writing up assets to fair market value, and eliminating the subsidiary's capital structure. 2. Specific steps are provided for eliminating intercompany sales, fixed asset transactions, and bonds between the parent and subsidiary. 3. Brief instructions are given for accounting for the issuance of stock to acquire a company.

Uploaded by

Jon Leins
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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Acquistion Method 1:45 start time

Eliminating the Investment in Sub account on consolidated B/S

1.Record Goodwill

Goodwill 200K
Invest in sub 160K (assuming 80% ownership)
Noncontrolling interest 40K

2. Write assets to FMV

Land 100K (assuming FMV is 100K greater than book)


Invest in sub 80K
NC interest 20K

3. Eliminate 100% of the sub's capital structure

C/S
R/E
APIC
Invest in sub 80%
NC interest 20%

Elimination of Intercompany Transactions


1. Intercompany Sales with Profits

• Eliminate the sales themselves

Sales 100K
COGS 100K

• Eliminate any intercompany A/R, A/P

A/P 100K
A/R 100K

• Eliminate any intercompany profit if still in inventory

COGS 10K (assuming 20K G.P., 50% still in inventory)


Inventory 10K

2. Intercompany sales of fixed assets


Situation: Parent sells Sub equipment with 16K book value for 12K, SL depreciation, 5 year life

• Eliminate any intercompany gain/loss


• Adjust the asset, its either overstated or understated

Equipment 4000
Loss on sale of equipment 4000

• Adjust depreciation

Depreciation Expense 400 (4K loss/5 years = 800/year understated * 1/2 year = 400)
A.D. 400

Note: Reverse all the entries if there in an intercompany gain

3. Intercompany Bonds
Situation: P buys 100K of sub's 6% bonds on 7/1

• Eliminate the investment & the debt

Bonds Payable 100K


Loss on bond retire 5K --> [plug gain or loss due to discount/premium, if it doesn't
balance]
Investment in Bonds 105K

• Eliminate any intercompany interest payable/receivable

Interest Payable 3K [6% * 6/12 * 100K]


Interest receivable 3K

• Eliminate any intercompany interest revenue/expese

Interest revenue 3K
Interest expense 3K

Issuing Stock to acquire a company

• Capitalize purchase @ FMV of stock on date of issuance


• Finder's fees, consultants, etc.. = Expense
• Costs of registering stock = Reduces APIC

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